Are public preferences reflected in monetary policy reaction functions?
AbstractIn this paper, we test whether public preferences for price stability (obtained from the Eurobarometer survey) were actually reflected in the interest rates set by eight central banks. We estimate augmented Taylor (1993) rules for the period 1976Q2–1994Q1 using the dynamic GMM estimator. We find, first, that interest rates did reflect society’s preferences since the central banks raised rates when society’s inflation aversion was above its long-run trend. Second, the reaction to inflation is was non-linearly increasing in the degree of inflation aversion. Third, this emphasis on fighting inflation did not have a detrimental effect on output stabilization. We conclude with some implications concerning the democratic legitimation of central banks.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 40 (2014)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/622617
Central bank; Democratic legitimation; Eurobarometer; Inflation aversion; Monetary policy; Public preferences;
Other versions of this item:
- Matthias Neuenkirch, 2013. "Are Public Preferences Reflected in Monetary Policy Reaction Functions?," MAGKS Papers on Economics 201321, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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